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Change in Useful Life of Asset

  • 1.  Change in Useful Life of Asset

    Posted Jan 07, 2020 04:22 PM
    We are using Dynamics GP 2016. We have a number of assets that were originally placed in-service 5 years ago with an original useful life of 20 years.  We use the straight-line original life depreciation method. Due to new regulations issued in 2020, the remaining useful life of these assets is now only 5 years (as opposed to 15 remaining years as currently showing in GP).  Is there a way to change the asset cards so that the current net book value of the asset will be depreciated evenly over the revised remaining life of 5 years?  We don't want the system to change any prior depreciation calculations, we only want the change to be effective from 1/1/20 forward.

    As an example, assume the original cost basis was $1,000, with annual depreciation of $50 based on the original 20 year useful life. NBV after 5 years is now $750 ($1,000 - ($50*5) = $750).  We want to change the annual depreciation going forward to $150 for the remaining 5 years ($750/5 = $150).

    We've experimented with changing the Original Life (choosing Recalculate) and switching the Depreciation Method to Straight Line Remaining Life, but we don't get the result we are looking for.

    Any suggestions are appreciated.

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    Richard Brunson
    SVP & Controller
    Eastern Generation
    Stamford CT
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    Conference-GPUG_200x200


  • 2.  RE: Change in Useful Life of Asset

    GPUG ALL STAR
    Posted Jan 08, 2020 08:10 AM
    Hi @Richard Brunson

    You are doing it correctly, per your post, so that leads me to this question:  What do you mean by "but we don't get the result we are looking for".

    Can you elaborate on the Result you are looking for?​

    Also, don't use Straight Line Remaining Life, try Straight Line Original Life and see what happens.  Here is an outline of how the Straight-Lines work in GP:

    Straight Line Orig Life:  (Cost - Salvage Value - Special Depr Allowance) / Original Life in Years
    NOTE: If the Original Life includes days, the days will be converted to a fraction with days as the numerator and 365 as the denominator

    Straight Line Remaining Life (Cost - Salvage Value - (LTD Depreciation Already Taken Amount - YTD Depr Amount) / Remaining Life in DAYS
    NOTE: This calculation determines the daily depreciation rate, which must be multiplied by thte number of days in the year.  This method is NORMALLY used when selecting the "Switch to Straight Line Option".  But this is talking about the "Switchover" field NOT when you actually just start using Straightline.

    Try using Straight Line Original Life with NO SWITCHOVER as the depreciation Method and see what results you get.  Please be mindful that the Averaging Convention also plays into when depreciation is taken.

    Let us know how it turns out by changing it, and also what results you are Expecting.


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    Conference-GPUG_200x200


  • 3.  RE: Change in Useful Life of Asset

    Posted Jan 08, 2020 04:18 PM
    Thank you for replying.

    The result we are looking for is annual depreciation of $150/year for the remaining 5 years, which is years 6 - 10 of the overall revised useful life of 10 years. Current NBV at the end of YR-5 of $750 / 5 year remaining useful life = $150/year depreciation YR-6 through YR-10.

    The result we are receiving, even if we just leave the Depreciation Method as Straight-Line Original Life, is annual depreciation of $100 for YR-6 through YR-9 and $350 of depreciation in YR-10.  Rather than just depreciating the current NBV of $750 at the end of YR-5 over the remaining 5 years evenly, GP is recalculating the annual depreciation as if the revised 10 year life was the original life on day 1 ($1000 cost / 10 yr life = $100 annual depreciation).  It adds the cumulative LTD depreciation difference of $250 for YR-1 through YR-5 ($100 new annual depreciation - $50 prior annual depreciation * 5 years) to the YR-10 depreciation.

    In our case, the event triggering the change in the estimated useful life of the asset occurred in 2020. Therefore, this is a change in estimate going forward only, so the current NBV should be depreciated evenly over the new remaining useful life.  We were hoping there was a way to modify the existing asset cards to accomplish this without having to retire the existing assets and add new assets with the current NBV amount as the Cost Basis.

    Thanks.

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    Richard Brunson
    SVP & Controller
    Eastern Generation
    Stamford CT
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    Conference-GPUG_200x200


  • 4.  RE: Change in Useful Life of Asset

    GOLD CONTRIBUTOR
    Posted Jan 08, 2020 04:44 PM
    Hi Richard,
    I see you are generation and the terms you use can I assume you are referring to Fixed Assets and FERC accounting?

    Kerry Hataley
    Nanook Software


    Conference-GPUG_200x200


  • 5.  RE: Change in Useful Life of Asset

    Posted Jan 09, 2020 08:59 AM
    Hi Kerry,

    I'm referring to regular GAAP accounting.

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    Richard Brunson
    SVP & Controller
    Eastern Generation
    Stamford CT
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    Conference-GPUG_200x200


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